Freddie Mac cuts profit reported for first half by $220 million to correct computer error

Tuesday, November 8th 2005, 10:14 am

By: News On 6

WASHINGTON (AP) _ Mortgage finance giant Freddie Mac, emerging from an accounting scandal, said Tuesday that its earnings for the first half of 2005 were about $220 million lower than originally reported due to computer errors.

The government-sponsored company, which is the second-largest buyer and guarantor of home mortgages in the country, said that it earned $1.4 billion in the first six months of the year, instead of the $1.6 billion reported on Aug. 31.

The revision reflects a correction in Freddie Mac's interest accruals for certain mortgage-related securities. The company said it had miscalculated these amounts since 2001 because of an old computer system.

Freddie Mac said the correction represented less than 1 percent of its $36.1 billion of reported core capital as of June 30, required by its federal regulator to be maintained as a cushion against risk.

An accounting crisis in mid-2003, when Freddie Mac disclosed that it had misstated earnings by some $5 billion _ mostly underreported _ for 2000-2002, brought the ouster of its top executives.

The company reported in August that its earnings dropped nearly 60 percent in the first half of the year amid continued volatile interest rates. Net income fell to $1.64 billion, or $2.22 a share, in January-June from $4.07 billion, or $5.74 a share, in the same period last year.

``We've made enormous strides in fixing our financial infrastructure but, as we have previously disclosed, the effort is not yet complete,'' Chief Financial Officer Martin Baumann said in a statement Tuesday. ``When we found this error, we corrected it immediately. We are continuing to move forward to complete the job of producing timely, accurate financial reports early in 2006.''